Summary
- Despite lower fees, the bank is a clear beneficial from higher rates.
- Higher cost of risk but record results on the trading activities.
- Net income was up by more than 10% and beats analyst estimates by more than 20%. Mare Evidence Lab's buy rating is confirmed.
Before the Q3 release, we concluded that:
- After our ECB rate hike assessment, we were forecasting an upside on BNP Paribas' (BNPQY) (BNPQF) NII sensitivity with clear growth in the earning trajectory
- Wall Street consensus was not forecasting the French bank business plan
- On the valuation side, BNP Paribas was scoring at the highest ranking in yield (including dividends and buybacks) and at the lowest outcome based on Tangible Book Value (ex-SocGen).
Our buy case recap was also based on seven additional macro-to-micro reasons. You can have a look at our previous publication called " we reiterate our buy rating on BNP Paribas ". So, today we are back to comment on the quarterly accounts.
Q3 results
BNP Paribas recorded higher-than-expected revenues and profits in the third quarter of 2022, benefiting, like other European banks, from the increase in interest rates. The French giant closed the July-September period with a net profit up by 10.3% compared to the same period of 2021 which stood at €2.76 billion. According to analyst consensus provided by FactSet, this result beat expectations by almost 20%. Revenues increased by 8% to €12.3 billion, above the consensus expectations of €12 billion, of which €5.721 billion of net interest income, up by +9.6%, and commissions for a total consideration of €2.5 billion, down by 1.2%. Despite an unfavorable market environment, turnover from the corporate and institutional banking segment, which brings together investment banking operations, increased by 5.9% to €3.7 billion, thanks to the global markets division. Looking at the nine months aggregate, top-line sales increased by 9.4%o to €38.31 billion and net profit amounted to €8 billion. However, we should note that the bank's cost of risk increased by 34% over the year, reaching €947 million, including a one-off impact of €204 million from the suspension of mortgages in Poland. At the end of the quarter, the bank RoTE stood at 11.4% with a Common Equity Tier 1 ratio of 12.1%. The solvency ratio was 10 basis points lower on a quarterly basis and BNP reiterated its expectation of an €11 billion capital benefit from the Bank of the West's disposal.
Conclusion and Valuation
After having analyzed the quarterly report, our internal team confirms the buy rating with a target price of €72 per share. The company once again demonstrated better-than-expected profits in all divisions, in particular at the commercial banking level as well as at the corporate investment arm. We are not surprised to see a positive reaction from the market given the solid revenue performance and the bottom line. Our buy rating is confirmed and is also supported by a steady growth of its tangible book value.
For further details see:
BNP Paribas: All Checked Out